Auditing in the Classroom Is Changing

The new, computerized CPA exam calls for fresh teaching methods.




This month the new, computerized version of the Uniform CPA Exam replaces its paper-and-pencil predecessor. The computer-based test is a joint effort by the AICPA, NASBA and Prometric, a developer of technology-based testing services.

Today’s students are getting auditing training that doesn’t resemble the instruction you experienced. Changes in the profession, in technology, in the audit world and in accounting education are bringing about academic retooling to better prepare future staff members to meet the demands of becoming a CPA and to perform audit tasks. The geographic restrictions of the paper-and-pencil exam are a thing of the past. Candidates can sit for the exam up to four times each year and can take each part separately anywhere in the United States (see “ Tips on Preparing Employees for the New CPA Exam, JofA , Mar.04, page 11). Besides that flexibility, the new exam makes improvements in the areas of security and candidate skills assessment. My colleagues and I want to heartily encourage practitioners to spend some time in the classroom with us to participate in training the young men and women who will become your staff, protgs and partners—as well as the profession’s standard bearers.

Recent accounting lapses have highlighted how important an efficient and impeccable audit is to business health, but even in 2000—before Enron and subsequent misdeeds came to light—the AICPA along with the American Accounting Association, the Institute of Management Accountants and the Big 5 accounting firms had sponsored a study of accounting education. The published results, Accounting Education: Charting the Course through a Perilous Future by W. Steve Albrecht and Robert J. Sack ( ), urged many changes in the way the profession prepares accounting students.

The study found

Too much emphasis on memorization, with tests that were based primarily on recall.

Too much reliance on lectures, on textbooks as lesson plans and on “faculty knows best” attitudes.

Widespread academic reluctance to develop creative types of learning, such as assignments with real companies, teamwork, case analyses, oral presentations, role playing, team teaching, technology assignments, videos, writing assignments, involvement of business professionals in the classroom and the study of current events.

Academic resistance to using out-of-classroom experiences such as internships, field studies, foreign business trips, service-learning assignments, observation of professionals in the work environment and e-mail correspondence with practitioners.

How to Participate

CPAs interested in helping to bring the benefit of their experience into the classroom can do the following:

Contact the accounting department at a college near you.

Find out the name of the auditing professor. Contact him or her, express your interest and request a syllabus.

Explain to the professor where your experience and his or her topics coincide.

Offer to participate in classroom discussions.

The time you commit will depend on your willingness to participate and on the course structure. A class where students discuss the risks in an industry you are familiar with may not require much preparation time. More preparation time might be necessary if you comment on a case presentation in a less familiar industry. Depending on the program, you might choose to attend multiple sections of the course.

Besides the fact that students and faculty will appreciate your contribution, it will give you the opportunity to have students get to know you and your firm outside the campus-recruiting environment.

Many practitioners remember auditing instruction based on memorization. Some of us were required to recall the 10 auditing standards and identify departures from them in a given example. After memorizing the standard report, we had to write an audit report based on a set of facts. That was solid conceptual training, but it didn’t show the potential variables of an actual business situation.

This month the new, computerized CPA exam will begin operating and will make a radical change in the proficiencies it tests. An AICPA paper, “Skills for the Uniform CPA Examination,” defines what the exam will cover ( ). The competencies are

Analysis: the ability to organize, process and interpret data to develop options for decision making.

Judgment: the ability to evaluate options for decision making and provide an appropriate conclusion for the situation.

Communication: the ability to effectively elicit and express information through written or oral means.

Research: the ability to locate and extract relevant information from available resource materials.

Understanding: the ability to recognize and comprehend the meaning, influence and application of a particular matter.

Accordingly, those of us who teach accounting have been modifying how we do so, and in today’s curriculum an auditing course looks quite different. One change is that professors are looking more at the CPA exam content when developing their courses. Although this practice might have had a questionable implication previously, one professor I know says structuring a course around the new, computerized exam is appropriate because the technology adjusts the exam requirements to give each person what is, in effect, a different test of content and skill. In that respect the exam now mirrors the real world—the examinee must know the principles and rules and correctly adjust his or her performance to a set of circumstances.

There are various ways to reconstruct an auditing course to improve it using the Albrecht and Sack report and the new CPA exam as guides.

The auditing portion of the revised CPA exam weights the content as follows:

22%–28% —Planning the engagement, evaluating the prospective client, deciding whether to accept or continue the engagement and entering into an agreement with the client. (The large percentage of exam weight allocated to this topic should inspire instructors to emphasize this more in the classroom.)

12%–18% —Considering internal controls in both manual and computerized environments.

3 2%–38% —Substantive testing, that is, obtaining and documenting information to form a basis for conclusions (and independently evaluate the client’s controls). (The comparative percentages for internal control and substantive tests may be misleading. Some allocation difference is due to the subtopics under this category, including accounting and review services and statistical sampling.)

8%–12% —Review of the engagement to provide reasonable assurance that the objectives were achieved and information to document engagement conclusions was obtained.

12%–18% —Preparation of communications to satisfy engagement objectives.

The regulations part of the exam asks questions about topics typically covered in an auditing course. This portion of the exam (15%–29%) is devoted to issues that encompass ethics and CPAs’ professional and legal responsibilities.

Modern developments may have made auditing too big a topic to cover in one course, and some schools now offer two. At the University at Albany in New York, we no longer teach internal control and computer auditing in the auditing course but include them in an information systems course.

At Albany we divide students into groups of three or four on the first day. These groups work together for the duration of the course. We try to keep lectures to a minimum and to emphasize developing their research, writing and oral-presentation skills and ability to analyze audit information. To give the students a feel for an actual business audit, we assign work that focuses on an industry and a transaction cycle. Practitioners who visit and talk about what actually happens in the workplace are especially helpful (see “ How to Participate ”). We cover

Regulation. Students learn about independence and audit failure as well as the standard-setting process. The groups discuss regulation as it pertains to

The CPA profession (and the concept of professionalism in general). Students draw conclusions about the self-discipline it takes to be a CPA. We discuss the profession’s history with respect to self-regulation, why the PCAOB has taken over standards for auditors of public companies and how and why state boards of accountancy have been increasing their regulatory oversight.

Ethics. We look at the relationship between ethical conduct and complying with a set of rules; we compare SEC, AICPA, GAO, state and other countries’ independence rules. (Ethics and legal liability are getting more public attention now than in the past, which will, I hope, lead to more emphasis on ethics throughout the curriculum as well as in the auditing classroom.)

Licensure. CPAs are licensed by their state, and we discuss with students the profession’s concern about the complexity of different state licensure requirements because some large-firm partners must be licensed in numerous states. We discuss the Uniform Accountancy Act and the advantages and disadvantages of states’ accepting licensees from another state under the concept of substantial equivalency. The students discuss another alternative—a possible national CPA license—a sometime topic at state board meetings. A state board member attends a session to provide insight.

Legal liability. Some of the groups trace the history of privity and the right of third parties to sue CPA firms.

Planning. Students need to know that procedures may legitimately vary by engagement, and that their choices will depend on a number of factors:

Auditing standards. We talk about who issues generally accepted auditing standards and the impact of PCAOB-issued standards. Other discussion questions focus on, for example, the objective of an audit of financial statements and private- vs. public-company standards. We talk about how auditing standards are used as a guide to the underlying concepts and objectives of an audit. We talk about Sarbanes-Oxley and about the recent changes mandated for the audits of public companies.

Assess engagement risk. We discuss how to assess the types of risks an audit may involve. The groups research the history of the expectations for the CPA to discover fraud. Each looks into its assigned industry and identifies its unique, inherent control and detection risks. The groups examine the provisions of SAS no. 99 and, based on the guidance provided and its research into the industry, identify potential fraud areas. We discuss the issues in current fraud cases. It’s helpful if CPAs from industry and public practice visit and comment on industries they are familiar with and explain why fraud is difficult to detect. AICPA audit guides, the assessments of participating CPAs with specific industry experience and other sources all assist students in this area.

Analytical procedures: We look at case studies to show how the proper use of such procedures can identify potential problem areas.

Other planning topics: We discuss issues about client acceptance, staffing, use of other auditors and internal control staff, communication with a predecessor auditor and the use of a specialist.

Internal control. We describe elements of internal control that lead to exercises that require the groups either to evaluate a system of internal control for a transaction cycle or develop an internal control questionnaire for such a cycle.

Overview: Using the industry assigned and its previously identified risks, students develop a control system that minimizes those risks. CPAs from industry and public practice can enhance course content by attending students’ presentations on industries they are familiar with and discussing the risks and the controls that can minimize them.

Transaction cycles. The groups, assigned a transaction, now develop an audit program covering that industry. They make a presentation that discusses the nature of their assigned industry, its risks, and what audit procedures would be appropriate considering risk and materiality. Guest CPAs can add their insights in these discussions, too.

Review. We explore the evaluation of evidence and the use of analytical procedures. The groups discuss a case on going-concern issues and determine whether there is substantial doubt in regard to a company’s ability to continue as a going concern.

Reports. Written assignments and class presentations receive considerable grading weight.

Audit reports. Based on various scenarios involving going concern, scope limitation, GAAP and other issues for actual (but unidentified) companies, each group presents an opinion letter to the class with references to GAAS and GAAP as justification for departures from an unqualified opinion. We then compare their reports with the actual reports.

Jan R. Williams, CPA and Ernst & Young Professor and Dean of the College of Business Administration at the University of Tennessee at Knoxville, says the following aspects of the exam make for a good prescription to improve many accounting curricula:

Emphasis on skill development in addition to subject matter.

Focus on the business environment in which accounting is practiced.

Integration of accounting subject matter typically covered in different accounting courses.

Increased literacy expectations regarding both the use and knowledge of technology.

My colleagues and I hope this view into accounting course design will show practitioners how colleges are responding to the call to strengthen the CPA profession. Our aim is to prepare accountants with improved entry-level skills, who understand what a real-world practice entails and who consistently perform at a high ethical level. By acting on the suggestions presented in this article to spend some time in the classroom working with us, your firm can be part of developing and teaching the new auditing curricula.

NICHOLAS J. MASTRACCHIO Jr., CPA, PhD, is associate accounting professor at the University at Albany School of Business in New York. He is the author of Mergers and Acquisitions of CPA Firms: A Guide to Practice Valuation, AICPA, 1998, and of many articles. His e-mail address is .

Web site
For more information on how to help aspiring CPAs learn more about the accounting profession and the career opportunities available, go to the AICPA Web site .
AICPA National Governmental Accounting & Auditing Update Conference (GAAC)
JW Marriott, Washington, D.C.
August 23–25, 2004
Omni Interlocken, Broomfield, Colorado
September 26–28, 2004

Practitioners Symposium
Venetian, Las Vegas
June 13–15, 2004

For more information about any of these resources or to register, go to or call the AICPA at 888-777-7077.

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